Listen to my RNZ Nine-to-Noon segment online. This week I look at Apple’s recent run of bad news where the world’s first trillion dollar company has seen its profits drop just as a new security bug was discovered by a teenager. Also on the segment I talked about the world’s first commercial quantum computer and discuss if deep fakes are the start of a new arms race.
Earlier this year IBM told remote employees they must return to the office or leave the company.
It’s a turnaround. IBM pioneered allowing employees to work from home. At times as many as more than a third of the firm’s staff worked at places away from company offices.
The company often lectures others on the merits of remote work. Company marketing describes telework as the future. Moreover, IBM sells products enabling its customers to offer remote work to their employees.
IBM’s remote work policy was popular with staff. Many talented people either opted to join the company or decided to stay put because they could work from home. It’s powerful for working women with families and just as good for dads who like to see their children more often.
Productivity or IBM’s staff costs?
The official reason for the change is that working together in one place helps productivity, teamwork and morale.
There’s something in this. Collaboration is easier when co-workers sit across the aisle. Video conference calls are productive, but so are well organised face-to-face sessions. Chance meetings at the coffee station can spark fresh thinking.
Yet, you can’t help wonder if IBM’s move is about cutting staff numbers. Many remote workers may decide it is too hard to move home in order to keep their job. Some of the office demands mean people have to move long distances to keep their jobs.
There’s research, some sponsored by IBM, showing teleworkers are more productive than office-bound workers. Which argument are we supposed to believe? Can we trust anything the company says on the subject?
Yahoo made a similar back-to-the-office move. It was unpopular. Many talented staff members quit. We all know how well that story ended.
There’s a practical problem for IBM workers in places like New Zealand. Some specialist roles are shared with Australia. There are ANZ managers are in New Zealand, others across the Tasman. They shuttle between locations and make a lot of conference calls. What happens to them under the new rules? The fear is they will be under pressure to move closer to the regional HQ in Sydney. That will not go down well with New Zealand customers.
Remote working became popular with large companies about a decade ago as suburban broadband improved. Video conferencing went from being difficult to practical.
Senior managers across the technology and other industries loved the idea of remote work as they thought it would save costs. In theory, offices needed less real estate and fewer support services when workers were elsewhere.
Things didn’t work out that way. Few savings materialised.The other part of this equation is that management went through a stage of being output-focused. That is, they were more concerned with what employees produced than in keeping close tabs on them all day long. If someone produced a report in their pyjamas or by sitting next to the pool that wasn’t a problem so long as the work was good. It seems the pendulum has swung back to command and control.
The jamf blog covers a presentation by Fletcher Previn, VP of Workplace as a Service at IBM:
In 2015, IBM let their employees decide – Windows or Mac. “The goal was to deliver a great employee choice program and strive to achieve the best Mac program,” Previn said. An emerging favorite meant the deployment of 30,000 Macs over the course of the year. But that number has grown. With more employees choosing Mac than ever before, the company now has 90,000 deployed (with only five admins supporting them), making it the largest Mac deployment on earth.
But isn’t it expensive, and doesn’t it overload IT? No. IBM found that not only do PCs drive twice the amount of support calls, they’re also three times more expensive. That’s right, depending on the model, IBM is saving anywhere from $273 – $543 per Mac compared to a PC, over a four-year lifespan.
IBM is now the biggest Mac user, so the business technology giant’s experience is important. By any standard 90,000 users is a significant sample size. The total cost of ownership matters when you measure users in tens of thousands.
And we’re talking here about the company that started the PC ball rolling 35 years ago. That must count for something too.
IBM’s reinvention as a software and services business still serves as an object lesson in turning troubled technology companies around. It switched from dependence on mainframe and servers to selling software, services and outsourcing.
At the time, the turnaround seemed miraculous. Now IBM needs to pull another rabbit from the hat.
The technology market is going through yet another transition. IBM has placed plenty of bets in the brave new world. It even has an acronym for these markets: CAMSS (cloud, analytics, mobile, security and social). They are all fast-growing areas, but IBM’s efforts are not growing fast enough to offset declines elsewhere in the company’s portfolio.
Worse, these new lines of business have lower margins than existing lines, which in turn have lower margins than IBM’s mainframe-era businesses.
This IBM reinvention is late to market
IBM was late to all these exciting new markets. Take cloud: In the latest financial report IBM says cloud revenues climbed 50 percent year on year. We need to be careful with these numbers as IBM has a habit of bundling hardware sales services into its cloud revenue numbers.
To put IBM’s figure in perspective, Amazon recently announced 80 percent year on year growth in cloud services.
To be fair, IBM isn’t a plain vanilla cloud company. It often wraps cloud with other sophisticated services. That sounds good, but it could be a problem. IBM doesn’t have the culture needed to run the commodity cloud infrastructure customers demand.
The cloud market looks set to shake down with a handful of global giants emerging along with specialist and geographic niche players. IBM doesn’t rate in the top five cloud companies. Its best hope is to be a specialist cloud niche player.
IBM has yet to explain what the social part of CAMSS means, which leaves security. Now there’s no question security is an important and growing market. There will be fortunes made in this area, but security alone is not enough to sustain IBM. At least not the company we know.
Low margin business
One odd aspect of IBM’s strategy is the company is throwing money at risky, low-margin areas that don’t suit its culture. The cash might be better spent leveraging strengths.
Sure, the mainframe market is in long-term decline, but as ZDNet reports revenue from IBM’s latest mainframe was up 9 percent year-on-year.
IBM’s strategic problem is that it has no answers for the changes taking place in the industry. The people able to make the right decisions are the kind of people who don’t rise to the top of the company’s conservative culture.
The company’s stock response when a market turns into a low-margin commodity business is to sell it off and breath a sigh of relief that it doesn’t have to get dirty down there. It’s done that with printers, PCs and more recently, with servers. Then, every so often, it embarks on another session of masochistic cost reduction, which means sacking workers and making those who remain less motivated and even more risk averse.
This approach avoids difficult questions like “how can we adjust our business model to deal with the new realities?” It’s a question IBM can’t put off any longer.
Although market share can be misleading in technology discussions, it is important in cloud computing because of economies of scale. ↩
IBM needs to reinvent itself to deal with cloud computing. Although the job was never going to be easy, IBM has an enviable track record on major change. Now it needs an enviable IBM cloud.
It is the organisation that defined the original computer business. IBM built a monopoly and lead the mainframe era. Although it was late into the PC game, when it arrived it redefined the small computer market with the iconic IBM PC.
IBM wasted no time exiting the PC business when margins evaporated. It got into the consulting game ahead of the pack. IBM switched focus to software. It moved from hardware to services more than a decade before that idea arrived on rival HP’s radar.
Now IBM needs to show it has what it takes to compete with the likes of Amazon. So far it has struggled. Today’s IBM cloud is an also ran.
Cloud central to IBM business
Cloud computing strikes at the core of IBM’s business. It threatens the rivers of gold IBM makes selling big, expensive mainframe computers, along with the software and service revenue that comes in their wake.
Customers who buy IBM mainframes must invest millions. That means anticipating needs when the future is far from certain. An IBM cloud means they only buy the computing they need, when they need it. Which explains why the mainframe market is falling.
Playing catch-up this way looks like a smart strategy.
Yet there’s an awkward payload. IBM’s shareholders expect high profit margins. Cloud computing is a viable business. Done well the cloud makes a predictable income stream, but it is a low margin business.
And that’s where IBM is stumbling. It promised shareholders a high return. For the last five years it has told shareholders it would make US$20 in adjusted earnings per share by 2015.
That figure already looked doubtful. For the last ten quarters in a row, IBM’s revenue has fallen. Management pulled out the stops to meet the US$20 target. It sacked workers, borrowed money, tried creative accounting. None of these moves did anything to help IBM compete with Amazon, Google or Microsoft in cloud computing.
Overnight IBM CEO Ginni Rometty abandoned the US$20 a share target. She paid GlobalFoundries — no I’ve never heard of it either — US$1.5 billion to take the chip business off IBM’s books. Rometty also dropped a US$4.7 billion charge on the market.
IBM investors didn’t like the news. The share price fell seven percent.
Grumpy IBM investors better get used to the idea that keeping the business relevant is more important than hitting financial milestones. That short-term gain would be at a long-term cost. Perhaps even the demise of IBM — a brand that has lasted more than 100 years.
Long-term survival may hinge on building an IBM cloud empire to compete head-on with Amazon, Microsoft and others. That’s worth a try and is a better choice than a slow death.
Once IBM has established a cloud empire, it can wrap its lucrative software and services back into these offerings. That way it can recover some of the lost margins.
Bowing to investor’s short-term dictates or shoring-up unsustainable business models do not work. The smart move is to focus on creating products and services people want to buy.